Luxembourg GDP growth severely threatened by ageing population

Many advanced economies such as Luxembourg's will be threatened by another, long-term fiscal shock unless they tackle the problem of ageing populations, the ratings agency Fitch warned on Monday.

21.01.2013

(AFP) Many advanced economies such as Luxembourg's will be threatened by another, long-term fiscal shock unless they tackle the problem of ageing populations, the ratings agency Fitch warned on Monday.

"Whilst a successful resolution of the current fiscal crisis remains the most important driver for many advanced-economy ratings, without further reform to address the impact of long-term ageing these economies face a second, longer-term fiscal shock," a Fitch statement said.

Few countries face immediate threats, and reforms implemented by indebted eurozone members such as Greece, Italy and Portugal "have effectively neutralised the long-term impact of ageing on public finances in those countries," it added.

But others, in particular Cyprus, Ireland and Japan, could well see the cost of ageing populations jump over the next decade, the agency said, warning that this would affect the sovereign debt ratings of such countries at some point.

"Luxembourg, Belgium, Malta and Slovenia face the most severe impact over the very long term," Fitch noted.

Based on the agency's calculations, barring any reforms, debt to GDP (gross domestic product) ratios for the European Union's 27 member countries would rise by 6.9 percent by 2020, and by 119.4 percent by 2050.

"Without reforms to boost labour productivity and/or participation rates in many other advanced economies, population ageing will cause potential GDP growth to decline over the long-term, exacerbating the fiscal challenge," Fitch added.